All Forum Posts by: Selina Giarla

 I am not so concerned on the house price itself, I am not looking for an under market deal although it would be nice. However, the rents have not caught up to the increase in house prices which are making the metrics impossible to factor. Do you have any suggestions?

 Agree, it does make things hard. I could be somewhat flexible on age of the house, but I chose 10 years because if we are living out of state, we would need to rely on local contractors for repairs and capital items, which can be costly and eat up all your annual profit. I appreciate the offer to send the deals you looked at, that would be great. Do you mind sharing your underwriting/proforma? Always curious what other investors are doing to run analysis.

I'll start here... I have 8 doors. I have been involved in many facets of real estate. I am not a newbie but my portfolio is small and I am eager to grow it fast. I like to stick with 2-4 unit properties so I don't need a commercial loan, and I don't have a ton of cash in the event of a massive vacancy or capital investment, so more expensive isn't necessarily in my wheelhouse. I recently started out of state investing in Texas. Since I am out of state, I like to avoid the uncertainty of older home and prefer new builds or houses that are within 10 years old, max. I prefer Texas because it's a landlord friendly state, there is no state income tax so I don't need to file taxes in TX and MA (where I am from), the tenant's pay for a lot of the repairs, maintenance, etc. and there are no snow removal costs. Construction/Labor is cheap and its a growing state with respect to population, and lack of available housing.

All this being said...I CANNOT find a good deal. The houses are expensive, the rents haven't caught up, the int rates are through the roof, and the rent alone cannot even cover the operating expenses and debt service, nevermind turn a profit. Even if I go up to 50% equity, and zero out my vacancy factor, cost to lease, R&M and CapEx underwriting, I barely turn a profit (a few hundred a month). I want find a deal and put in an offer within the next 2 months. How are you all finding anything that makes sense?!

Thank you! So it sounds like you agree that real estate taxes, debt service and closing costs should all be factored in to the CoC calculation right? And what do you think about up front escrow funding as part of the total cost expense? I am torn on this because it's kind of like double counting in year 1 since as part of my mortgage payment, I also pay taxes and insurance. If I were to refinance or sell, the balance in my escrow would be refunded. It's almost like a "deposit" in my mind. I don't want to artificially inflate CoC by including it unless you feel its a true cost

@Jonathan Bock - I have two goals: 1.) Have monthly profit (which I realize may be more than the annual cash flow because that factors some assumptions that may not happen (vacancy, leasing costs, as much R&M as budgeted) in the year.

2.) I also want to analyze deals apples to apples to choose one that makes the most sense with respect to my returns. I figured CoC is the best tool for that. If I have 3 deals, all with different debt costs, capital outlay, etc. I want to be able to determine which one has the best CoC. To me, it doesn't make sense to calculate a yield without debt service if you are using debt, because it's a real expense and it's something to compare to cap rates.

I have spent hours looking online (including on here) at the CoC calculation as well as the ROI calc. Here is my understanding

1. Cash on Cash Return=  

Annual (before tax) Cash Flow / Total Investment

Question: Does the Annual (before tax) Cash Flow include: Real estate taxes, insurance, vacancy factor, capex contribution, annual leasing fees, R&M factor, and debt service? These are aside from the standard expenses such as mgmt fees, utilities, HOA, landscaping/snow.

Question: Does Total Investment include: Down payment, closing costs (including escrow funding?), and legal fees to close?

I can't imagine not doing a calculation that doesn't factor real estate taxes, or debt service (mortgage pmts) so if CoC isn't the correct calculation please let me know. My strategy is receive monthly income, and hold long term if that changes anything.